New Pipelines Needed to Bridge Natural Gas Supply and Demand Gap

In a column I wrote a few months ago, I mentioned the many benefits of the American shale gas revolution. To be sure, our country has the opportunity to use its vast natural gas resource base to improve the economy and produce environmental benefits. Of course, if we are to use low-cost natural gas to reduce energy costs and revive the manufacturing sector, among other things, we must be able to access it.

I am talking about midstream infrastructure – gathering systems, processing and fractionation facilities – as well as long-haul transmission pipelines, compressor stations and gas storage facilities.

A March 2014 study by the Interstate Natural Gas Association of America (INGAA) Foundation finds that, with rising production, the U.S. requires nearly 40 billion cubic feet per day (Bcf/d) of added gas pipeline capacity by 2035 – with the majority (23 Bcf/d) needed by 2020. Capital outlays on this delivery infrastructure – for methane and for natural gas liquids, which are found in the “wet” gas plays such as the Utica Shale – would approach $370 billion, about a third of which would be spent in the eastern U.S. Necessary additions would comprise 18,000 miles of gas transmission mainline; 17,000 miles of laterals to and/or from power plants, storage facilities and processing stations; 300,000 miles of gathering lines; more than 800 Bcf of storage; and 34 Bcf/d of processing capacity and more than 3 million barrels per day of fractionation capacity – all by 2035.

While Dominion is active in the natural gas infrastructure business, our company is also a natural gas customer. We use gas as a major generating source to provide reliable electricity to our 2.5 million customer accounts in Virginia and northeast North Carolina. We also must ensure reliable natural gas supplies as a local distributor of the fuel to 1.3 million homes and businesses in West Virginia and Ohio.

It is from this perspective – as a customer – that we launched our largest energy project to date: the $4.5-to-$5 billion Atlantic Coast Pipeline with our partners Duke Energy, Piedmont Natural Gas and AGL Resources. The planned 550-mile pipe would begin in West Virginia, traverse Virginia, and end along the Interstate 95 corridor in southeastern North Carolina.

Regarding shale gas, the issue is not supply. The reserves are there, and producers are ramping up production. The INGAA Foundation study expects that daily gas production in the Marcellus and Utica Shales will double over the next two decades. The challenge is connecting those supplies to the domestic markets that value them the most.

No greater example of the accessibility issue exists than the impact of the “polar vortex” of January 7, 2014. Generally speaking, the vast majority of natural gas used by utilities and manufacturers in Virginia and North Carolina comes from the Gulf region. Limited supplies are transported from the Marcellus and Utica. On January 7, natural gas prices spiked sevenfold at the gas hub serving Virginia. Higher demand helped cause the increase, but transmission constraints played a part. Meanwhile, at the hub serving the Pittsburgh area, prices barely budged. In fact, they remained below those of Henry Hub in the Gulf region.

Why? Because the Pittsburgh area is oversupplied with natural gas, and there is a lack of infrastructure to transport those supplies to constrained markets such as Virginia and North Carolina. In fact, many pipeline operators are reversing their pipes to carry gas away from Pennsylvania, Ohio and West Virginia – rather than to them. So far, approximately 10 Bcf/d of fully contracted natural gas pipelines are reversing flows to move gas from the Utica-Marcellus region to the Gulf and westward.

To ensure reliability and price stability, utilities in Virginia and North Carolina need access to multiple gas supply basins. And that access is what the Atlantic Coast Pipeline would provide.

I mentioned earlier that the American shale gas revolution would provide economic and environmental benefits. The Atlantic Coast Pipeline represents a microcosm of the overall effects of shale gas on our economy and environment.

As electric utilities await the Environmental Protection Agency’s final greenhouse gas emissions rules, we know that more coal-fired power stations will shut down and that their output in the near term will likely be replaced by gas-fired facilities – which produce about half the carbon per unit of output as coal-fired ones – and, over time, by renewables such as solar and wind farms. The result would be cleaner air – fewer emissions of nitrogen oxides, sulfur dioxide, mercury, particulate matter and carbon dioxide. But Americans will not see near-term benefits unless there is adequate infrastructure to move gas to power plants so that coal-fired stations can close.

The second benefit of the 42-inch pipeline is economic in nature: more jobs, more tax revenue, more stable electricity and home heating prices and opportunities to recruit manufacturing jobs and other economic development because of the greater availability of natural gas.

The Atlantic Coast Pipeline would add 1.5 Bcf/d in gas transmission capacity to the region and support 17,000 construction jobs. For a richer picture of the overall landscape, the INGAA Foundation points to a much larger impact of building the necessary infrastructure to support increased gas production. To the tune of $216 billion in value-added benefits to the Southeast and Northeast regions and more than 106,000 jobs annually – jobs that, on average, pay more than $60,000 per year.

New pipelines, such as the pipeline Dominion is proposing with Duke, Piedmont and AGL, can give electric and gas utilities peace of mind: reducing the risk that infrastructure constraints would affect operation of gas-fired power plants and round-the-clock delivery of gas to end-use customers; and protecting customers from price spikes such as those that occurred in January 2014.

As vast domestic gas supplies continue to be tapped, the question is not whether this product benefits the U.S. and its citizens, but rather how those supplies will reach the consumers that need and want them. American consumers demand reliable energy, at stable prices. Utilities demand greater access and robust infrastructure. Our society demands job creation and economic development – based on cleaner, more sustainable energy sources.

Projects such as the Atlantic Coast Pipeline can help give all stakeholders what they want, and give promise to the opportunities presented by the shale gas revolution.

Thomas F. Farrell II is chairman, president and chief executive officer of Richmond, Va.-based Dominion.

Morning Consult